Topic: Transfer Pricing

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  • 10 Marks

MA – Nov 2024 – L2 – Q1a – Transfer Pricing

Explanation of three reasons why Kako PLC determines transfer pricing centrally.

Kako PLC is a multinational company with production divisions trading in many countries across the globe. Trade takes place between a number of the divisions in different countries, with intermediate products being transferred between them. Where a transfer takes place between divisions trading in different countries, it is the policy of the board of the company to determine centrally the right transfer price without reference to the managers in the division.

Required:

i) Explain THREE possible reasons for Kako PLC to determine transfer prices of goods from the head office.

ii) Explain TWO criticisms of the central determination of transfer pricing.

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  • 15 Marks

ATAX – May 2017 – L3 – Q5 – Transfer Pricing

Explain the significance of transfer pricing, its regulation, and methods.

The dwindling oil revenue in recent times has constrained the earning capacity of the Nigerian government. This situation accelerated the slide in the nation’s economy into recession in 2016. There has been a lot of arguments as to which regime’s actions or inactions brought about this economic malaise. Some experts argue that Nigeria has good tax laws, but successive governments displayed a lack of political will to implement them. They posit that the lack of implementation has caused the nation’s Internally Generated Revenue (IGR) to nosedive.

As part of various recommendations by these experts, coupled with the compelling need to shore up the Internally Generated Revenue, the Federal Inland Revenue Service (FIRS) has created the Transfer Pricing Division located in the FIRS Building at Ikoyi, Lagos. To give teeth to its mandate, the Division has been writing multinationals and groups of companies to file returns with it, in respect of their transfer pricing activities.

MGBORIE GROUP LIMITED recently received one of such letters from the FIRS, which startled the Chairman/Chief Executive who is already sensing rough times with the FIRS.

As the company’s tax consultant, the letter was forwarded to you for further explanations.

You are required to state:
a. The significance of Transfer Pricing. (2 Marks)
b. TWO objectives of the Income Tax (Transfer Pricing) Regulation Act of 2012. (2 Marks)
c. Contents of the Transfer Pricing Disclosure and Submission Forms to the FIRS. (5 Marks)
d. THREE Transfer Pricing Methods. (6 Marks)

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  • 15 Marks

ATAX – May 2019 – L3 – Q6 – Transfer Pricing

Outline key aspects of transfer pricing regulations in Nigeria, including objectives, key concepts, and methods.

The need for monitoring and controlling the operations of multi-national enterprises (MNEs) and their local subsidiaries or associate companies around the world has necessitated special interest in various governments putting in place mechanisms for the treatment of transfer pricing. Although transfer pricing is not new in Nigeria, the law regulating it, the Income Tax (Transfer Pricing) Regulation Act, was enacted in August 2012. It specifies that “every taxpayer” is expected to develop a transfer pricing policy in regard to transfer pricing and control transactions, as well as treatment of transactions of permanent establishments (PE) and dispute resolutions.

You have been invited by the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) to present a paper at a workshop on transfer pricing regulations in Nigeria. The primary objective of the workshop is to provide the participants, both local and foreign stakeholders in the Nigerian business environment, necessary information on transfer pricing issues in Nigeria.

You are required to outline relevant points to address the following issues:

a. Objectives of application of transfer pricing regulation in Nigeria (3 Marks)
b. The concepts of:
i. Connected taxable persons (3 Marks)
ii. Arm’s length principle (3 Marks)
c. Description of three transfer pricing methods (6 Marks)

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  • 15 Marks

AT – Nov 2014 – L3 – SC – Q5 – Transfer Pricing

Explain transfer pricing objectives, treatment of permanent establishments, and disclosure requirements under FIRS.

You are the Tax Manager of Forum Tax Associates and recently represented your firm at a Workshop organised by the Federal Inland Revenue Service (FIRS), Western Zone, on Transfer Pricing Regulations in Nigeria.

The Workshop was to create awareness on the filing requirements and compliance with the provisions of “The Income Tax (Transfer Pricing) Regulations 2012.”

The Workshop, which was held on the 20th Floor of the Nigeria Stock Exchange building, was fully attended by Company Auditors, Tax Practitioners, Stock Brokers, Bankers, and other Stakeholders.

From the notes you took at the Workshop, you presented a report to the Managing Partner, Forum Tax Associates, on Wednesday, 3 September 2014. The Managing Partner thanked you for a good job and highlighted some key areas of the regulations that will serve as a guide to the staff of the firm.

Required:
Prepare a technical briefing for the staff explaining the following key areas noted by the Managing Partner:
a) Objectives of the application of Transfer Pricing Regulations. (6 Marks)
b) Treatment of Permanent Establishment. (2 Marks)
c) Contents of a Transfer Pricing Disclosure to be submitted by Companies to the FIRS. (7 Marks)

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  • 20 Marks

ATAX – May 2023 – L3 – Q3 – Transfer Pricing

Explain transfer pricing compliance, declaration, and disclosure requirements along with arm's length comparability factors.

Transfer pricing has become a topical fiscal policy issue globally due to the need for governments to prevent tax evasion and economic double taxation. Developing countries are encouraged to establish regulations to protect their tax bases while maintaining investor confidence.

NADA Incorporated, a multinational company headquartered in Quebec, Canada, plans to establish a textile company in northern Nigeria. While reviewing the Nigerian Income Tax (Transfer Pricing) Regulations 2018, the board of directors identified uncertainties around transfer pricing documentation and arm’s length comparability factors.

You are engaged as the company’s Tax Consultant to clarify these issues.

Required:

Send a report to the Managing Director of PROMOT Link, explaining:

(a) Transfer pricing compliance report (3 Marks)
(b) Transfer pricing declaration form to be submitted to the Federal Inland Revenue Service (FIRS) (6 Marks)
(c) Transfer pricing disclosure form to be submitted to the FIRS (6 Marks)
(d) Arm’s length comparability factors in transfer pricing (5 Marks)

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  • 8 Marks

ATAX – Nov 2018 – L3 – Q4c – Transfer Pricing

Advisory on maintaining the arm's length principle in inter-company transactions for Abbey Limited.

(c) You are the tax controller of Abbey Limited, the holding company of a group of companies involved in various businesses including: trading, manufacturing, distribution, and packaging. The companies from time to time supply goods and services to each other at pre-determined prices.

You are required to:
Advise the board of Abbey Limited on the factors to be considered when the entities transact business amongst themselves to ensure that the arm’s length principle is upheld.
(8 Marks)

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  • 30 Marks

PM – Nov 2014 – L2 – Q1 – Divisional Performance Measurement

Analyze transfer pricing impact on divisional performance and group profitability with tax implications for cross-border divisions.

Naijax Group Limited has been in operation since 1980, playing a leading role in the automobile industry.

Division “X,” which is part of the group, manufactures only “265 by 16’’ Rim tyre, which it sells to external customers and also to Division “Y,” another member of the group. Naijax Group’s policy is that:

  • Divisions have the freedom to set transfer prices and choose their suppliers.
  • It uses Residual Income (RI) for performance appraisals.
  • The group’s cost of capital is 12% per annum.

The two divisions’ operating data are as follows:

Division X
Budgeted information for the coming year:
Maximum capacity 150,000 tyres
External sales 110,000 tyres
External selling price N35,000 per tyre
Variable cost N22,000 per tyre
Fixed costs N1,080,000,000
Capital employed N3,200,000,000
Target residual income N180,000,000

Division Y has found two other companies willing to supply tyres:

  • Adex Limited could supply at N28,000 per tyre, but only for annual orders in excess of 50,000 tyres.
  • Banaxa Limited could supply at N33,000 per tyre for any quantity ordered.

Required:

(a) If Division Y provisionally requests a quotation for 60,000 tyres from Division X for the coming year:

i. Determine the transfer price per tyre that Division X should quote in order to meet its residual income target. (9 Marks)

ii. Calculate the TWO prices that Division X would have to quote to Division Y if it becomes the group’s policy to quote transfer prices based on opportunity costs. (2 Marks)

(b) Evaluate the impact of the group’s current and proposed policies on the profits of Divisions X and Y and on group profit. (4 Marks)

c. Assume that Divisions X and Y are based in different countries and consequently pay taxes at different rates: Division X at 55% and Division Y at 25%. If Division X has now quoted a transfer price of N30,000 per tyre for 60,000 tyres, you are required to determine whether it is better for the group if Division Y purchases
60,000 tyres from Division X or from Adex Limited. (15 Marks)

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  • 15 Marks

PM – May 2017 – L2 – SA – Q7 – Transfer Pricing

Discuss transfer pricing and recommend pricing structure for internal divisions of Adebel Nigeria Limited.

  1. Adebel Nigeria Limited manufactures motorcycles, operating through two divisions: the assembling division (Division A) and the engine division (Division E). Division E supplies engines to both Division A and external customers. The company’s policy requires that Division E prioritize internal sales to Division A over external sales, while Division A is mandated to purchase exclusively from Division E. However, this policy, along with the transfer price set by Division E, is under review.

    Division Details:

    • Division A anticipates a need for 45,000 engines in the coming year, with an external supplier price of N80,000 per engine.
    • Division E can produce up to 70,000 engines per year, with the following budgeted details:
      • Budgeted sales volume: 70,000 units
      • External selling price: N85,000 per engine
      • Variable cost per unit for external sales: N77,000
      • Variable cost per unit for internal sales to Division A: N3,000 less due to distribution and packaging savings.
      • Maximum external demand: 35,000 units per year.

Requirements:

a. Recommend the transfer price(s) for internal sales, considering the conditions. (5 marks)

b. Using calculations, advise the number of engines Division E should supply to Division A to maximize group profits, assuming a flexible policy. (5 marks)

c. Discuss two performance measures suitable for evaluating divisional performance of autonomous divisions operating as investment centers. (5 marks)

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  • 15 Marks

PM – May 2019 – L2 – Q5 – Transfer Pricing

Profitability analysis for two divisions, including transfer pricing and external supplier impacts.

TK is a company that produces toy television sets targeting children of the elite. The company has two divisions, Division S and Division B. Division S manufactures components for the televisions and sells components to Division B and to external customers. Division B uses five of the components in each of the toy television sets that it manufactures and sells television sets directly to external customers.

Division S
Budgeted variable manufacturing cost per component (N):

  • Direct material: 140
  • Direct labour: 180
  • Variable overhead: 120

Additional Information:

  • Fixed costs: N5,600,000
  • Production capacity: 175,000 components
  • External demand: 150,000 components
  • Potential demand from Division B: 80,000 components
  • Anticipated external market price for a component: N500

Division B

  • Sales price: N4,500
  • Budgeted variable manufacturing cost per television (N):
    • Direct material: 400
    • Direct labour: 620
    • Variable overhead: 160

Each toy television set produced needs five components. Fixed costs are budgeted to be N14,600,000 for next year. Annual sales of the toy television sets are expected to be 16,000 units.

Transfer Pricing Policy:

  • Transfer prices are set at opportunity cost.
  • Division S must satisfy the demand of Division B before selling components externally.
  • Division B is allowed to purchase components from Division S or from external suppliers.

Required:
a. Assuming that Division B buys all the components it requires from Division S:
Prepare a profit statement for each division detailing sales and costs, showing external sales and internal company transfers separately where appropriate. (6 Marks)

b. A specialist external supplier has approached Division B and offered to supply 80,000 components at a price of N420 each. The components fulfil the same function as those manufactured by Division S. The manager of Division B has accepted the offer and agreed to buy all the components it requires from this supplier:
i. Produce a revised profit statement for each division and for the total TK company.
ii. Division S has just received an enquiry from a new customer for the production of 25,000 components. The manager of Division S requires a total profit for the year for the division of N4,500,000.

  • Calculate the minimum price per component to sell the 25,000 components to the new customer that would enable the manager of Division S to meet the profit target. (4 Marks)

Note: This order will have no effect on the divisional fixed costs and no impact on the 150,000 components Division S sells to its existing external customers at N500 per component. Division B will continue to purchase the 80,000 components it requires from the specialist external supplier.

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  • 30 Marks

PM – May 2018 – L2 – Q1 – Divisional Performance Measurement and Transfer Pricing

Differentiate responsibility centres, explain divisional structure, recommend transfer prices, and consider qualitative factors.

DASET DRINKS NIGERIA PLC.
(30 MARKS)
Daset Drinks Nigeria Plc. has been operating in the Nigerian food and beverages
industry as an entity with three distinct factories across the country. One of the
factories bottles soft drink while the other two produce bottles and crown corks for
the soft drink factory.
The company has recently been experiencing problems with its performance
evaluation system across the three factories. Each factory manager is of the
opinion that his factory is the one contributing the most to the overall performance
of the company.
In a recent management retreat, the guest speaker, a performance management
expert, emphasised the need to develop Key Performance Indicators (KPI) for each
of the factories and departments in the company. According to him, this will
enhance performance evaluation of all the managers in the company and will also
make performance management easier. He suggested that the company should
adopt a divisional structure whereby each of the factories will become an
autonomous division with responsibilities for investment, revenues, profits and
costs.
At the last Executive Management meeting, after the retreat, the company‟s top
management decided to adopt the recommendations of the guest speaker. The top
management agreed transfer prices acceptable to each of the divisional managers
and also the needs to decide whether the two factories manufacturing bottles and
corks cocks could sell to external markets.
The top management has mandated you, as the company‟s management
accountant, to supply necessary data that will assist them in taking appropriate
decisions.

Financial data collected about the company‟s operations are as follows:
The costs and selling prices of the divisions are:

This includes costs of bottle and crown cork. To produce one bottle of soft drink
requires one bottle and one crown cork.
The bottling division has the choice to buy its bottle and crown cork requirements
from the external market.
The variable costs of production for external sales and internal transfers are the
same and bottles and crown corks are being transferred to the bottling division at
these costs.
For brand protection, the soft drink factory is not willing to buy bottles and crown
corks from any external supplier.
Required:
a. Differentiate among an investment centre, a profit centre, a revenue centre
and a cost centre, in a divisional organisation giving one example of each.
(8 Marks)

b. Explain a divisional structure, stating the problems associated with this type
of structure in an organisation. (8 Marks)

c. Advise the top management on the transfer prices that will maximise the
company‟s profit and be acceptable to the factory managers.
(10 Marks)
d. Discuss TWO qualitative factors that the top management needs to consider
in taking these decisions. (4 Marks)

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  • 4 Marks

PM – Nov 2018 – L2 – Q2c – Transfer Pricing

Explains two key attributes of a good transfer pricing policy.

Explain TWO attributes of a good transfer pricing policy.

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  • 16 Marks

PM – Nov 2018 – L2 – Q2a and Q2b – Transfer Pricing

Calculate divisional profits and analyze the group impact under different demand scenarios and alternative sourcing options.

X and Y Divisions are two arms of the XY group of companies. X Division manufactures one type of component, which it sells to external customers and also to Y Division.

The following information relates to X Division:

  • Market price per component: N200
  • Variable cost per component: N105
  • Fixed costs: N1,375,000 per period
  • Demand from Y Division: 20,000 components per period
  • Capacity: 35,000 components per period

Y Division assembles another type of product, which it sells to external customers. Each unit of that product requires two of the components manufactured by X Division.

The following information relates to Y Division:

  • Selling price per unit: N800
  • Variable cost per unit:
    • Two components from X: 2 @ transfer price
    • Other variable costs: N250
  • Fixed costs: N900,000 per period
  • Demand: 10,000 units per period
  • Capacity: 10,000 units per period

Group Transfer Pricing Policy:

  • Transfers must be at opportunity cost.
  • Y must buy the components from X.

Required:

a. Calculate the profit for each division if the external demand per period for the components made by X Division is: i. 15,000 components ii. 19,000 components iii. 35,000 components

b. Calculate the financial impact on the Group if Y Division ignored the transfer pricing policy and purchased the 20,000 components it needs from an external supplier for N170 each. Your answer must consider the impact at each of the three levels of demand (15,000, 19,000, and 35,000 components) from external customers for the components manufactured by X Division.
(3 Marks)

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  • 20 Marks

PM – Mar/Jul 2020 – L2 – Q5 – Transfer Pricing for Olascom Nigeria Limited

Calculation of the optimal transfer price for products between divisions at Olascom Nigeria Limited and evaluation of divisional performance.

Olascom Nigeria Limited has two operating divisions, Western division and Eastern division that are treated as profit centres for the purpose of performance reporting. Western division makes two products, Tot and Tal. Tot is sold to external customers for ₦310 per unit. Tal is a part-finished item that is sold only to Eastern division. Eastern division can obtain the part-finished item from either Western division or from an external supplier. The external supplier charges a price of ₦275 per unit.

The production capacity of Western division is measured in total units of output of Tot and Tal. Each unit requires the same direct labour time. The costs of production in Western division are as follows:

Required:
a. What is an optimal transfer price? (4 Marks)
b. What would be the optimal transfer price for Tal if there is spare production capacity in Western division? (4 Marks)
c. What would be the optimal transfer price for Tal if Western division is operating at full capacity due to a limited availability of direct labour, and there is unsatisfied external demand for Tot? (7 Marks)
d. Discuss two methods that can be used to evaluate performance of divisions that operate as investment centres,
(5 Marks)

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  • 20 Marks

PM – Mar/Jul 2020 – L1 – SB – Q2 – Budgetary Process and Behavioural Problems for Toby Nigeria

Discussion on budgeting and behavioral issues at Toby Nigeria Limited and redrafting of a budget statement.

Toby Nigeria Limited is a publishing company established in the early 1970s. The company has recently been taken over by Superior Quality Limited – a multinational company operating in Europe.
Mr. Edet Akpan, a staff of Superior Quality Limited, has been sent from the company’s headquarters to review, among other things, the budgeting and reporting system used by Toby Nigeria Limited.
During his visit to all the departments, he discovered that monthly budgets are prepared for each department in the company. Upon request, the last budget statement for the School Stationery Production Department (SSP) for period V was presented to him.
The budget statement presented was as follows:
Budget statement for period V
Department: SSP Department

Mr Tola Ademola, the School Stationery Manager, revealed that the budget statement presented was based on 40,000 units with a standard labour content of 3 hours per unit.
Mr. Akpan observed that Tola was not in any way enthusiastic about the budget system. He saw it as a pressure system imposed by the company’s top management to indict some of the managers. He pointed out that the system was hurriedly introduced by High Flyer Consults, about twelve months ago. The consultant never took time to talk to the managers or provide explanation that
could assist users to understand the system. The experienced School Stationery Manager was doubtful about the competence of the consultant. He was of the
opinion that the system introduced in Toby Nigeria Limited was either a ready-made one developed for another company or that the consultant did not understand the system well enough to give him the needed confidence to educate the users. He concluded by stating that he was sure his department made a loss as
against the positive figure recorded in the report and there was the possibility of reporting a loss at another period when profit was actually made. The situation reported above cuts across virtually all the departments and so the need to nip the situation in the bud became very urgent.
The task of making budgeting system more useful and acceptable in a biased environment like this, no doubt, seems difficult therefore, Mr. Akpan has requested from you an advice that will assist him in getting out of the woods.

Required:
a. Redraft the budget statement in a more informative manner. (12 Marks)
b. Discuss the behavioral problems brought out in this situation. (4 Marks)
c. Discuss the steps Mr. Akpan should take to remedy the situation. (4 Marks)

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  • 20 Marks

Determine the optimal transfer pricing for consulting services between divisions within KayCee Ltd based on varying capacity scenarios.

The Management Information System (MIS) division of KayCee Ltd provides consulting services to its clients as well as to other divisions within the group. Consultants always work in teams of two on every consulting day. Each consulting day is charged to external clients at GH¢750, which represents cost plus a 150% profit markup. The total cost per consulting day has been estimated to be 80% variable and 20% fixed.

The director of the Human Resources (HR) division of KayCee Ltd has requested the services of two teams of consultants from the MIS division on five days per week for a period of 48 weeks, and has suggested that she meets with the director of the MIS division in order to negotiate a transfer price. The director of the MIS division has responded by stating that he is aware of the limitations of using negotiated transfer prices and intends to charge the HR division GH¢750 per consulting day.

The MIS division always uses Internal video-conference equipment on all internal consultations which would reduce the variable costs by GH¢50 per consulting day.

Note: The conference equipment can only be used when providing internal consultations.

Required:

a) Calculate and discuss the transfer prices per consulting day at which the MIS division should provide consulting services to the HR division in order to ensure that the profit of KayCee Ltd is maximized in each of the following situations:

i) Every pair of consultants in the MIS division is 100% utilized during the required 48-week period in providing consulting services to external clients, i.e. there is no spare capacity.
ii) There is one team of consultants who, being free from other commitments, would be available to undertake the provision of services to the HR division during the required 48-week period. All other teams of consultants would be 100% utilized in providing consulting services to external clients.
iii) A major client has offered to pay the MIS division GH¢264,000 for the services of two teams of consultants during the required 48-week period.

(14 marks)

b) Explain THREE (3) limitations of negotiated transfer prices.

(6 marks)

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  • 6 Marks

MA – Nov 2018 – L2 – Q1c – Transfer pricing

Discuss the objectives of transfer pricing within multinational companies, focusing on goal congruence and tax optimization.

Intra-group trading within multinationals is trending and is a very important part of business today. This intra-group trade is aimed at promoting global trade competitiveness. Within this competitive environment, companies within the group usually trade with each other and therefore may be required to set fair and arm’s length prices for goods and services. Such prices may give benefits other than the mere value for goods and services.

Required:
Identify and explain THREE (3) objectives of transfer pricing. (6 marks)

 

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  • 3 Marks

: MA – May 2019 – L2 – Q1c – Transfer Pricing

Discuss the limitations of using negotiated transfer prices within a company.

When negotiated transfer prices are used in the company, the managers who are involved in the proposed transfer within the company meet to discuss the terms and conditions of the transfer. They may decide not to go through with the transfer, but if they do, they must agree to a transfer price.

Required:
Explain THREE (3) limitations of negotiated transfer prices. (3 marks)

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  • 20 Marks

MA – Nov 2021 – L2 – Q1 – Transfer Pricing

Discuss the objectives of transfer pricing and prepare profit statements for divisions in a group scenario.

Lamiokor and Zenator are two divisions of Tsorkor group. Lamiokor division manufactures an intermediate product known as component A which has no external market. Zenator division incorporates this intermediate product, component A, into a final product that it sells to external customers. One unit of component A is used in the production of one unit of the final product. Lamiokor has quoted a transfer price of GH¢45 for each unit of component A.

The details of monthly production costs for each division are as follows:

Lamiokor Division:

  • Variable cost: GH¢15 per Component A
  • Product Specific Fixed Cost: GH¢50,000 (Incurred only by Lamiokor division and specifically for the production of Component A)

Zenator Division:

  • Variable cost: GH¢9 per unit
  • Product Specific Fixed Cost: GH¢75,000 (Cost incurred only by Zenator when converting component A to the final product)

The relationship between monthly external customer demand and selling price of the final product is as follows:

Month Demand (Units) Selling price per Unit (GH¢)
1 1,000 120
2 3,000 100
3 4,000 90
4 5,000 80
5 6,000 67

Required:
a) Explain FOUR (4) objectives of transfer pricing.

(4 marks)

b) Based on a transfer price of GH¢45 per component A, prepare the monthly profit statement for:
i) Lamiokor Division (6 marks)
ii) Zenator Division (6 marks)
iii) Tsorkor Group (4 marks)

 

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  • 6 Marks

MA – May 2017 – L2 – Q1d – Transfer pricing

Describe three methods of transfer pricing and discuss their limitations.

Transfer pricing is the method used to sell a product from one subsidiary to another within a company. It impacts the purchasing behavior of the subsidiaries and may have income tax implications for the company as a whole.

Required:

Describe any THREE methods of transfer pricing and discuss their limitations.

(6 marks)

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  • 20 Marks

MA – May 2016 – L2 – Q3 – Transfer Pricing, Divisional Performance, Relevant Cost and Revenue, Decision Making Techniques

Calculate profitability under different costing methods and evaluate an outsourcing offer, including additional decision factors.

Anim Shoes Ltd produces and sells Ghana-made shoes with two main departments: production/sales and repairs departments. The production and sales department produces and sells 10,000 pairs of shoes each year. Due to the low quality of raw materials available in the country, the company includes an additional GH¢11 in the cost of a pair of shoes sold to cater for one-year after-sales repairs. On average, it is expected that a quarter of the total pairs of shoes sold would come back for repairs a year after sale. Repair works on a pair of shoes take 2 labour hours, and it is estimated that total repair cost on the quarter of shoes will be GH¢27,500.

In addition to providing repair services to the production and sales department, the repair department sometimes picks up offers from outside the company. Such external offers are billed at full cost and a margin on sales of 20%. The following is the breakdown of the average repair cost of a pair of shoes:

Cost Item Cost (GH¢)
Material 2.50
Labour (1.5 per hour) 3.00
Variable Overheads 1.00
Fixed Overheads 2.30

Required:

i) Calculate the individual profits of the Production/Sales department, Repairs department, and Anim Ventures if repairs are done by the repairs department of Anim Ventures at either full cost plus 20% margin on sales or at marginal cost.
(8 marks)

ii) Pee Shoe Repairs has offered to repair each pair of shoes for Anim Ventures at GH¢10.00, a price which is cheaper than what the repairs department is offering. Should Anim Ventures accept this offer?
(5 marks)

iii) Identify THREE other factors Anim Ventures should consider in finalizing the decision in (ii) above.
(3 marks)

iv) Explain TWO principles of a good transfer pricing method.
(4 marks)

 

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